Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017 

 

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____ to ____

 

Commission File Number 001-36200

________________________

 

OXFORD IMMUNOTEC GLOBAL PLC

(Exact name of registrant as specified in its charter)

 

England and Wales	98-1133710
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
94C Innovation Drive, Milton Park, Abingdon OX14 4RZ, United Kingdom	Not Applicable
(Address of Principal Executive Offices)	(Zip Code)

 

+44 (0)1235 442780

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐		Accelerated filer	☒
Non-accelerated filer	☐		(Do not check if a smaller reporting company)
			Smaller reporting company	☐
			Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes☐ No☒

 

As of April 25, 2017, there were 22,926,903 Ordinary Shares, nominal value £0.006705, of Oxford Immunotec Global PLC outstanding.

 

 

Oxford Immunotec Global PLC Form 10-Q Quarterly Period Ended March 31, 2017   TABLE OF CONTENTS   PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements:
		Condensed consolidated balance sheets as of March 31, 2017 (unaudited) and December 31, 2016	4
		Condensed consolidated statements of operations (unaudited) for the three months ended March 31, 2017 and 2016	5
		Condensed consolidated statements of other comprehensive loss (unaudited) for the three months ended March 31, 2017 and 2016	6
		Condensed consolidated statements of cash flows (unaudited) for the three months ended March 31, 2017 and 2016	7
		Notes to the unaudited condensed consolidated financial statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.		Controls and Procedures	27
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings	28
Item 1A.		Risk Factors	28
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.		Defaults Upon Senior Securities	28
Item 4.		Mine Safety Disclosures	28
Item 5.		Other Information	28
Item 6.		Exhibits	28
Signatures			29

 

 

Special note regarding forward-looking statements

 

This Quarterly Report on Form 10-Q, and exhibits hereto, contains or incorporates by reference estimates, predictions, opinions, projections and other statements that may be interpreted as “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The forward-looking statements are contained principally in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Part II, Item 1A, “Risk Factors,” but are also contained elsewhere in this Quarterly Report. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “would,” “could,” “should,” “intend,” “plan,” “contemplate,” “expect,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “target,” “potential,” “continue,” and “ongoing” and other comparable expressions intended to identify statements about the future, although not all forward-looking statements contain these identifying words. These statements involve substantial known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievements to differ materially from those currently anticipated. Forward-looking statements are neither historical facts nor assurances of future performance. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain and that involve substantial risks and uncertainties. Such risks and uncertainties include, but are not limited to:

 

●

our history of losses, our ability to achieve or sustain profitability and our ability to manage our growth;

 

	●	our ability to effectively use our current financial resources and our ability to obtain additional capital resources;

●

our ability to service our debt and meet the obligations thereunder;

 

●

our ability to further develop, commercialize and achieve market acceptance of our current and future products;

 

●

our ability to obtain regulatory body clearance to market any of our products;

 

●

our ability to successfully develop and complete the acquired in process research and development, or IPR&D, program and profitably commercialize the underlying product candidates before our competitors develop and commercialize similar products, or at all;

 

●

continued demand for diagnostic products for tuberculosis and the development of new market opportunities;

 

●

our ability to compete successfully and to maintain and expand our sales network;

 

●

decisions by insurers and other third party payors with respect to coverage and reimbursement;

 

●

our dependence on certain of our customers, suppliers and service providers;

 

●

disruptions to our business, including disruptions at our laboratories and manufacturing facilities;

 

●

the integrity and uninterrupted operation of our information technology and storage systems;

 

●

the impact of currency fluctuations on our business;

 

●

the impact of global economic and political developments, including the referendum to leave the European Union, passed by the United Kingdom, or U.K., on June 23, 2016, on our business;

 

●

potential changes in the United States, or U.S., social, political, regulatory and economic conditions or laws and policies governing the health care system, U.S. tax laws, foreign trade, immigration, manufacturing, and development and investment in the territories and countries where we or our customers and suppliers operate;

 

●

our ability to make successful acquisitions or investments and to manage the integration of such acquisitions or investments;

 

●

our ability to retain key members of our management;

 

●

the impact of taxes on our business, including our ability to use net operating losses;

 

●

the impact of legislative and regulatory developments, including healthcare reform, on our business;

 

●

potential changes to the Patient Protection and Affordable Care Act of 2010, or PPACA;

 

●

the impact of product liability, intellectual property and commercial litigation on our business;

 

●

our ability to comply with Securities and Exchange Commission, or SEC, reporting, antifraud, anti-corruption, environmental, health and safety laws and regulations;

 

●

our ability to maintain our licenses to sell our products around the world, including in countries such as China and the U.S. and in the several U.S. states requiring licensure;

 

●

our ability to protect and enforce our intellectual property rights;

 

 

●

our status as an emerging growth company and as an English company listing ordinary shares in the U.S.;

 

●

the volatility of the price of our shares, substantial future sales of our shares and the fact that we do not pay dividends; and

 

●

the impact of anti-takeover provisions under U.K. law and our articles of association.

 

You should refer to Part I, Item 1A, “Risk Factors” in our 2016 Annual Report on Form 10-K for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Further, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this Quarterly Report represent our views only as of the date of this Quarterly Report. Subsequent events and developments may cause our views to change. While we may elect to update these forward-looking statements at some point in the future, we undertake no obligation to publicly update any forward-looking statements, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.

 

Where you can find more information

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect, read and copy these reports, proxy statements and other information at the SEC’s Public Reference Room, which is located at 100 F Street, N.E., Washington, D.C. 20549. You can obtain information regarding the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that makes available reports, proxy statements and other information regarding issuers that file electronically.

 

We make available free of charge on our corporate website at www.oxfordimmunotec.com (in the “Investors” section) copies of materials we file with, or furnish to, the SEC. By referring to our corporate website, www.oxfordimmunotec.com, we do not incorporate such website or its contents into this Quarterly Report.

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Oxford Immunotec Global PLC

Condensed consolidated balance sheets 

 

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of operations 

(unaudited)

 

 

 See accompanying notes to these unaudited condensed consolidated financial statements.

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of other comprehensive loss 

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements.        

 

 

Oxford Immunotec Global PLC

Condensed consolidated statements of cash flows 

(unaudited)

 

 

See accompanying notes to these unaudited condensed consolidated financial statements. 

 

 

 

Oxford Immunotec Global PLC

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2017

 

 

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Special note regarding forward-looking statements” in this Quarterly Report on Form 10-Q for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report. In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and in the Company’s 2016 Form 10-K, particularly in Part I, Item 1A, “Risk Factors.”

 

Overview

 

Oxford Immunotec Global PLC is a global, high-growth diagnostics company focused on developing and commercializing proprietary tests for under-served immune-regulated conditions. Our current product lines and development activities principally focus on four areas: infectious diseases, transplantation, autoimmune and inflammatory disease and immune-oncology. We believe these areas are particularly attractive because they involve large patient populations and chronic conditions that present the opportunity for both initial diagnosis and additional testing to monitor the conditions. These immune-regulated conditions also tend to be characterized by wide variation in presentation and progression and often require expensive therapies, making diagnostic tests that can better categorize patients and inform treatment pathways particularly useful and cost-effective. Lastly, we believe these conditions to be under-served as the industry lacks the appropriate techniques to prosecute the immune responses which are driving these conditions.

 

Our first product, the T-SPOT^®.TB test, is used to test for tuberculosis, or TB, infection and leverages our proprietary T-SPOT technology platform, which allows us to measure the response of specific immune cells to inform the diagnosis, prognosis and monitoring of patients with immune-regulated conditions. Our T-SPOT.TB test has been approved for sale in over 50 countries, including the U.S., where we have received premarket approval, or PMA, from the Food and Drug Administration, or FDA, in Europe, where we have obtained a CE mark, as well as in Japan and China. Interferon-gamma release assays, or IGRAs, such as our T-SPOT.TB test have been included in clinical guidelines for TB testing in at least 34 countries, including the U.S., several European countries and Japan. In addition, we have established reimbursement for our test in the U.S., as well as a Current Procedural Terminology, or CPT, code that is unique to our test. Outside the U.S., we have established reimbursement in several countries where reimbursement applies, including Japan, Switzerland, Germany, and South Korea. We have also established the cost-effectiveness of our test in several published studies.

 

Our second product line is a range of assays for tick-borne diseases, such as Lyme disease, obtained through the acquisitions of Imugen, Inc., or Imugen, and Immunetics, Inc., or Immunetics, in 2016. Tick-borne disease is the collective name for diseases passed to humans through the bite of an infected tick. The most prevalent and well known tick-borne disease is Lyme disease, but there are others such as anaplasmosis, ehrlichiosis, and babesiosis. If left unrecognised, and therefore untreated, they may go on to cause significant downstream morbidity, including in rare cases death. Our diagnostic tests for tick-borne infections include multiple proprietary laboratory developed tests, or LDTs, offered from our Clinical and Laboratory Improvement Amendments, or CLIA, certified and College of American Pathologists, or CAP, accredited laboratory in Massachusetts and an FDA cleared test kit utilizing the C6 peptide, which is a marker specific to Lyme disease. Our C6 Lyme ELISA^TM kit is also CE marked in the European Union. Our tick-borne disease tests utilize molecular methods (such as polymerase chain reaction) and techniques to prosecute the immune system, and offer advantages over current tests and are widely reimbursed in the U.S. using existing codes on fee schedules.

 

Our third product line is a series of assays for use in blood screening, building upon our expertise in tick-borne disease. The parasite Babesia microti which causes babesiosis can be transmitted through the transfusion of infected blood, as well as by the bite of an infected tick. We are developing three assays for use in screening the U.S. blood supply for Babesia microti. We have submitted biological license applications for these three assays and they are currently under review by the FDA.

 

 

Babesiosis is a tick-borne disease characterized by a wide spectrum of clinical manifestations that range from asymptomatic to severe acute or even fatal illness. While the disease is generally mild to moderate in children and young healthy adults, it is more severe in neonates, the elderly and immunocompromised individuals such as those undergoing treatment for cancer. Babesiosis is predominately caused by a parasite called Babesia microti. While it is primarily transmitted through a tick bite, babesiosis can also be transmitted by blood transfusion. In fact, transfusion-transmitted babesiosis is responsible for the highest percentage (38%) of transfusion-related infectious fatalities reported to the FDA in transfusion recipients and Babesia microti is the highest ranking pathogen in the U.S. transmitted by blood transfusion for which no donor screening is available. The transmission risk of Babesia microti is comparable to the transmission risk of HIV, HBV, and HCV prior to the implementation of routine blood screening programs for these pathogens. Screening for Babesia microti, therefore, has become a priority for the FDA.

 

Our T-SPOT. CMV and T-SPOT. PRT tests are part of our fourth product line focused on the transplantation market. Both tests utilize our T-SPOT technology platform and are laboratory developed tests, or LDTs, performed in our CLIA certified, CAP accredited laboratory in Tennessee. Both the T-SPOT.CMV and T-SPOT.PRT tests are CE marked in the European Union. The T-SPOT.CMV test measures the strength of a patient’s cellular immune response to CMV specific antigens and provides information that may be useful in informing management strategies of patients at risk of CMV infection and disease, such as transplant patients. The T-SPOT.PRT test assesses a solid organ transplant candidate's T cell response to foreign tissue, or alloreactivity, and may help clinicians identify patients at increased risk of T cell mediated rejection post-transplant. We continue to take a measured approach to market introduction of these tests as we await final results of our two pivotal clinical studies involving these tests.

 

In addition to our existing product lines, we continue to pursue development programs targeting other immune-regulated conditions, as well as applications of our T-SPOT technology platform in immune-oncology. Product development activities are inherently uncertain, and there can be no assurance that we will be able to obtain regulatory body clearance to market any of our products, or if we obtain clearances that we will successfully commercialize any of our products. In addition, we may terminate our development efforts with respect to one or more of our products under development at any time, including before or during clinical trials.

 

We have incurred significant losses from inception and as of March 31, 2017 had an accumulated deficit of $176.7 million. We anticipate that our operating losses will continue for the next few years as we continue to invest to grow our customer base and invest in research and development to expand our product portfolio. Our revenue for the three months ended March 31, 2017 was $21.5 million and for the three months ended March 31, 2016 was $17.1 million. Our net loss for the three months ended March 31, 2017 was $8.1 million and for the three months ended March 31, 2016 was $7.0 million.

 

Financial operations overview

 

Revenue

 

We generate revenue from sales associated with our T-SPOT technology platform via our direct sales force and also through distributors. Our T-SPOT.TB test is our first commercialized product based on this technology and accounted for $18.5 million of our revenue in the first quarter of 2017. In addition, U.S. results for the first quarter of 2017 include revenue of $3.0 million from assays for tick-borne diseases, such as Lyme disease, obtained through our acquisitions of Imugen on July 1, 2016 and Immunetics on October 12, 2016.

 

Revenue mix

 

We currently offer our T-SPOT.TB test as both an in vitro diagnostic kit and a service. In the former, we sell test kits and associated accessories to distributors for resale and directly to institutions and laboratories that perform TB testing. In the latter, we have established clinical testing laboratories in the U.S. and the U.K., where we perform our T-SPOT.TB test on samples sent to us by customers. In these markets, we have found that many of our customers prefer to send samples to us rather than perform their own analysis on-site.

 

Our U.S. business derived 92% and 96% of its revenue from our service offering, as opposed to kit sales, for the three months ended March 31, 2017 and 2016, respectively. These results reflect our experience that our U.S. customers prefer to send IGRA tests out for processing and analysis rather than run them in-house. For the majority of our U.S. customers in the hospital and public health segments, TB testing programs are funded primarily from institutional budgets. We receive payment from these customers according to our pre-negotiated prices. For other segments of the U.S. market (notably, for example, the physicians’ office segment) third-party reimbursement is often available to cover the cost of our T-SPOT.TB test. In addition, U.S. results for 2017 include revenue from operations acquired from Imugen, which is included in U.S. service revenue. For a portion of these tests, we receive payment from customers according to pre-negotiated rates. For other customers we seek third party reimbursement. U.S. results for 2017 also include revenue from Immunetics, which is included in product revenue. Immunetics kits are sold to customers at pre-negotiated rates.

 

 

Outside the U.S., we derived 91% and 93% of our revenue from the sale of our in vitro diagnostic kits and associated accessories for the three months ended March 31, 2017 and 2016, respectively. For the majority of our customers outside the U.S., we primarily negotiate pricing directly with our customers; our prices are influenced to some degree by the mechanism and level of funding our customers receive for performing tests for TB infection.

 

		Three months ended March 31,
(in thousands)		2017				2016
Revenue
Product		$	8,386			$	8,138
Service			13,119				8,972
Total revenue		$	21,505			$	17,110

 

Revenue by indication

 

With the acquisitions of Imugen and Immunetics in the second half of 2016, we evolved from a single-product company to a multi-product company. By indication, total revenues were as summarized in the table below.

 

		Three months ended March 31,
(in thousands)		2017				2016
Revenue
Tuberculosis		$	18,542			$	17,110
Tick-borne disease and other			2,963				—
Total revenue		$	21,505			$	17,110

 

Revenue by geography

 

We have a direct sales force in the U.S., certain European countries and Japan and market development personnel in China and South Korea. In parts of the world where we do not maintain a direct sales force, we market and sell our products through distributors. As a result, our revenue is denominated in multiple currencies. 

 

The following table reflects total revenue by geography (United States, Europe and rest of world, or Europe and ROW, and Asia) and as a percentage of total product revenue, based on the billing address of our customers. Revenue from operations acquired from Imugen is included in United States revenue for the first quarter of 2017. Revenue from operations acquired from Immunetics is included in both United States and Europe and ROW revenue for the first quarter of 2017.

 

		Three months ended March 31,
(in thousands, except percentages)		2017								2016
Revenue
United States		$	13,536				63	%		$	8,747				51	%
Europe and ROW			1,806				8	%			1,606				9	%
Asia			6,163				29	%			6,757				40	%
Total revenue		$	21,505				100	%		$	17,110				100	%

 

 

Cost of revenue and operating expenses

 

Cost of revenue and gross margin

 

Cost of revenue consists of direct labor expenses, including employee benefits and share-based compensation expenses, overhead expenses, material costs, cost of laboratory supplies, freight costs, royalties paid under license agreements, depreciation of laboratory equipment and leasehold improvements.

 

We expect our overall cost of revenue to increase as we continue to increase our volume of kits manufactured and tests performed. However, we also believe that through these increased volumes, we can achieve certain efficiencies in our manufacturing and laboratory operations that could help maintain or improve our overall margins.

 

During the three months ended March 31, 2017 and 2016, our cost of revenue represented 49% and 48%, respectively, of our total revenue.

 

		Three months ended March 31,
(in thousands)		2017				2016
Cost of revenue
Product		$	3,245			$	3,293
Service			7,252				4,872
Total cost of revenue		$	10,497			$	8,165

 

Our gross profit represents total revenue less total cost of revenue, and gross margin is gross profit expressed as a percentage of total revenue. Our gross margins were approximately 51% and 52% for the three month periods ended March 31, 2017 and 2016, respectively. The lower gross margin in 2017 reflects the lower gross margins from our operations acquired from Imugen and Immunetics. All cost of revenue from operations acquired from Imugen and Immunetics are reflected in service cost of revenue and product cost of revenue, respectively.

 

Research and development expenses

 

Our research and development efforts have historically focused on developing multiple new diagnostic tests that use our quantitative T cell measurement technology, including assays that may help transplant physicians better manage patients at risk of rejection and infection. On July 1, 2016, we completed our acquisition of substantially all of the assets of Imugen, a privately owned Massachusetts corporation focused on the development and performance of tests for tick-borne diseases. Additionally, on October 12, 2016, we acquired Immunetics, a Massachusetts based diagnostics company focused on developing specialized tests for infectious diseases, including tick-borne diseases, such as Lyme disease.

 

Our research and development activities include performing research, development, clinical and regulatory activities and validating improvements to our technology and processes for the purposes of enhancing product performance. Research and development expenses include personnel-related expenses, including share-based compensation, fees for contractual and consulting services, clinical trial costs, travel costs, laboratory supplies, amortization, depreciation, rent, insurance and repairs and maintenance. We have supported the continued growth of our T-SPOT.TB business and expanded the team focused on the development of new products through management of clinical trial programs. In addition, we are expanding our research and development efforts in the U.K. and in the U.S. We expense all research and development costs as incurred.

 

During each of the three month periods ended March 31, 2017 and 2016, our research and development expenses represented 18% of our total revenue.

 

Sales and marketing expenses

 

Our sales and marketing expenses include costs associated with our sales organization, including our direct sales force and sales management, and our marketing, customer service and business development personnel. These expenses consist principally of salaries, commissions, bonuses and employee benefits for these personnel, including share-based compensation, as well as travel costs related to sales, marketing, customer service activities, medical education activities and overhead expenses. We expense all sales and marketing costs as incurred.

 

 

During the three-month periods ended March 31, 2017 and 2016, our sales and marketing expenses represented 45% and 50%, respectively, of our total revenue.

 

General and administrative expenses

 

Our general and administrative expenses include costs for our executive, accounting, treasury, finance, legal, information technology, or IT, and human resources functions. These expenses consist principally of salaries, bonuses and employee benefits for the personnel included in these functions, including share-based compensation and travel costs, professional services fees, such as consulting, audit, tax and legal fees, costs related to our Board of Directors, general corporate costs, overhead expenses, and bad debt expense. We expense all general and administrative expenses as incurred.

 

During the three months ended March 31, 2017 and 2016, our general and administrative expenses represented 32% and 27%, respectively, of our total revenue.

 

Change in fair value of contingent purchase price consideration

 

During March 2017, as a result of events subsequent to the acquisition, we determined that the timing for FDA approval of the Babesia product acquired from Immunetics would be more likely to occur after the milestone due date. As a result, we recorded a $2.4 million decrease in fair value of contingent purchase price consideration related to our acquisition of Immunetics. The total contingent purchase price consideration of $6.0 million consisted of cash payable on the achievement of certain revenue thresholds and pipeline related milestones over the following three years, including FDA approval of the Babesia product by a certain date. The fair value of these milestone payments had been estimated to be $3.4 million on the date of acquisition based on significant assumptions, including the probabilities of milestone occurrence, the expected timing of milestone payments, and a discount rate of 4.4%.

 

For the first quarter of 2016, the increase in fair value of contingent purchase price consideration of $55,000 related to the Company’s former GoutiFind program and to the Company’s on-going SpiroFind program.

 

Other expense

 

Other expense includes interest expense, net, foreign exchange gains/ (losses) and other income and expense items.

 

Monetary assets and liabilities that are denominated in foreign currencies are remeasured at the period-end closing rate with resulting unrealized exchange fluctuations. Realized exchange fluctuations result from the settlement of transactions in currencies other than the functional currencies of our businesses. The functional currencies of our businesses are U.S. Dollars, Pounds Sterling, Euros, Japanese Yen and Chinese Yuan, depending on the entity.

 

 

Results of operations 

 

Comparison of three months ended March 31, 2017 and 2016

 

The following table sets forth, for the periods indicated, the amounts of certain components of our statements of operations and the percentage of total revenue represented by these items, showing period-to-period changes.

 

		Three months ended March 31,
		2017								2016								Change
(in thousands, except percentages)		Amount				% of revenue				Amount				% of revenue				Amount				%
Revenue:
Product		$	8,386				39	%		$	8,138				48	%		$	248				3	%
Service			13,119				61	%			8,972				52	%			4,147				46	%
Total revenue			21,505				100	%			17,110				100	%			4,395				26	%
Cost of revenue:
Product			3,245				15	%			3,293				19	%			(48	)			(1	)%
Service			7,252				34	%			4,872				28	%			2,380				49	%
Total cost of revenue			10,497				49	%			8,165				48	%			2,332				29	%
Gross profit			11,008				51	%			8,945				52	%			2,063				23	%
Operating expenses:
Research and development			3,805				18	%			3,021				18	%			784				26	%
Sales and marketing			9,640				45	%			8,480				50	%			1,160				14	%
General and administrative			6,876				32	%			4,583				27	%			2,293				50	%
Change in fair value of contingent purchase price consideration			(2,357	)			(11	)%			55				—	%			(2,412	)			(4,385	)%
Total operating expenses			17,964				84	%			16,139				94	%			1,825				11	%
Loss from operations			(6,956	)			(32	)%			(7,194	)			(42	)%			238				(3	)%
Interest expense, net			(823	)			(4	)%			(17	)			—	%			(806	)			4,741	%
Foreign exchange (losses) gains			(106	)			—	%			363				2	%			(469	)			(129	)%
Other expense			(140	)			(1	)%			(166	)			(1	)%			26				(16	)%
Loss before income taxes			(8,025	)			(37	)%			(7,014	)			(41	)%			(1,011	)			14	%
Income tax expense			(47	)			—	%			(35	)			—	%			(12	)			34	%
Net loss		$	(8,072	)			(38	)%		$	(7,049	)			(41	)%		$	(1,023	)			15	%

 

Revenue

 

Revenue increased by 26% to $21.5 million for the three months ended March 31, 2017 compared to $17.1 million for the same period in 2016. This increase in revenue reflected an increase in volumes for our T-SPOT.TB tests in the U.S. and the addition of our tick-borne disease tests, partially offset by lower revenue in Asia due to the timing of shipments.

 

U.S. revenue grew by 55%, to $13.5 million for the three months ended March 31, 2017, compared to the same period in 2016, driven by T-SPOT.TB test growth of $1.8 million from the addition of new customers and $150,000 from existing customers. In addition, revenue for the three months ended March 31, 2017 included tick-borne disease and other revenue of $3.0 million.

 

 

Asia revenue declined by 9% to $6.2 million for the three months ended March 31, 2017, compared to the same period in 2016, due primarily to the timing of shipments to China. On a non-Generally Accepted Accounting Principles, or non-GAAP, constant currency basis, revenue for Asia would have decreased by 8%. Europe and ROW revenue increased 12% to $1.8 million for the three months ended March 31, 2017, compared to the same period in 2016, due to strong TB sales and the additional contribution from the sale of Lyme kits, partially offset by the impact of changes in currency rates. On a non-GAAP constant currency basis, Europe and ROW revenue would have increased by 22% in 2017 compared to 2016.

 

Changes in revenue include the impact of changes in foreign currency exchange rates. We use the non-GAAP financial measure “constant currency basis” in our filings to show changes in our revenue without giving effect to period-to-period currency fluctuations. Under U.S. GAAP, revenues received in local (non-U.S. Dollar) currencies are translated into U.S. Dollars at the average exchange rate for the period presented. When we use the term “constant currency basis”, it means that we have translated local currency revenues for the prior reporting period into U.S. Dollars using the same average foreign currency exchange rates for the conversion of revenues into U.S. Dollars that we used to translate local currency revenues for the comparable reporting period of the current year. We then calculate the change, as a percentage, from the prior period revenues using the current period exchange rates versus the current period revenues. This resulting percentage is a non-GAAP measure referring to a change as a percentage on a “constant currency basis”. We consider the use of a period over period revenue comparison on a constant currency basis to be helpful to investors, as it provides a revenue growth measure free of positive or negative volatility due to currency fluctuations.

 

By revenue type, total revenues were:

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2017				2016				Amount				%
Revenue
Product		$	8,386			$	8,138			$	248				3	%
Service			13,119				8,972				4,147				46	%
Total revenue		$	21,505			$	17,110			$	4,395				26	%

 

By indication, total revenues were:

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2017				2016				Amount				%
Revenue
Tuberculosis		$	18,542			$	17,110			$	1,432				8	%
Tick-borne disease and other			2,963				—				2,963				N/M
Total revenue		$	21,505			$	17,110			$	4,395				26	%

 

By geography, total revenues were:

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2017				2016				Amount				%
Revenue
United States		$	13,536			$	8,747			$	4,789				55	%
Europe and ROW			1,806				1,606				200				12	%
Asia			6,163				6,757				(594	)			(9	)%
Total revenue		$	21,505			$	17,110			$	4,395				26	%

 

 

Cost of revenue and gross margin

 

Cost of revenue increased by 29% to $10.5 million for the three months ended March 31, 2017 from $8.2 million in the same period in 2016. This increase in cost of revenue was due to a 16% increase in the volume of TB tests performed by our laboratory in the U.S and the addition of cost of revenue from testing for tick-borne diseases. Gross margin was 51% and 52% for the three month periods ended March 31, 2017 and 2016, respectively.

 

		Three months ended March 31,								Change
(in thousands, except percentages)		2017				2016				Amount				%
Cost of revenue
Product		$	3,245			$	3,293			$	(48	)			(1	)%
Service			7,252				4,872				2,380				49	%
Total cost of revenue		$	10,497			$	8,165			$	2,332				29	%

 

Research and development expenses

 

Research and development expenses increased by 26% to $3.8 million for the three months ended March 31, 2017 from $3.0 million for the same period in 2016. The increase largely resulted from salary and other employee related expenses, which increased $761,000. As a percentage of total revenue, research and development expenses were 18% for each of the three month periods ended March 31, 2017 and 2016.

 

Sales and marketing expenses

 

Sales and marketing expenses increased by 14% to $9.6 million for the three months ended March 31, 2017 from $8.5 million for the same period in 2016. The increase largely resulted from salary and other employee related expenses, which increased $1.0 million. As a percentage of total revenue, sales and marketing expenses declined to 45% for the three months ended March 31, 2017 compared to 50% for the same period in 2016.

 

General and administrative expenses

 

General and administrative expenses increased by 50% to $6.9 million for the three months ended March 31, 2017 from $4.6 million for the same period in 2016. The increase in general and administrative expenses included increases of $1.2 million in legal and professional fees, largely related to our ongoing patent litigation, $647,000 in salary and other employee related expenses, and $123,000 for depreciation and amortization. As a percentage of total revenue, general and administrative expenses increased to 32% for the three months ended March 31, 2017 from 27% for the same period in 2016.

 

Change in fair value of contingent purchase price consideration

 

During March 2017, as a result of events subsequent to the acquisition, we determined that the timing for FDA approval of the Babesia product acquired from Immunetics would be more likely to occur after the milestone due date. As a result, we recorded a $2.4 million decrease in fair value of contingent purchase price consideration related to our acquisition of Immunetics. The total contingent purchase price consideration of $6.0 million consisted of cash payable on the achievement of certain revenue thresholds and pipeline related milestones over the following three years, including FDA approval of the Babesia product by a certain date. The fair value of these milestone payments had been estimated to be $3.4 million on the date of acquisition based on significant assumptions, including the probabilities of milestone occurrence, the expected timing of milestone payments, and a discount rate of 4.4%.

 

For the first quarter of 2016, the change in fair value of contingent purchase price consideration of $55,000 related to the Company’s former GoutiFind program and to the Company’s on-going SpiroFind program.

 

 

Interest expense, net

 

Interest expense, net was $823,000 for the three months ended March 31, 2017, compared to $17,000 in the same period in 2016. The increase in interest expense, net in 2017 mainly related to our October 4, 2016 agreement with MidCap Financial, or the MidCap agreement, that provides us with $40.0 million in debt financing, comprised of both a term loan and a revolving line of credit. The MidCap agreement provides us with a term loan of $30.0 million, which matures five years from closing. The term loan accrues interest at a rate of LIBOR plus 7.60% with interest only payments for the first 24 months, with the ability to extend to 48 months subject to certain conditions, before the loan begins to amortize. The MidCap agreement also provides us with a revolving line of credit of up to $10.0 million, which matures five years from closing. The revolving line of credit accrues interest at a rate of LIBOR plus 4.45%. Based on certain conditions, both the term loan and revolving line of credit may be increased by an additional $10.0 million for a total of $60.0 million. To date, we have not borrowed under the revolving line of credit.

 

Foreign exchange (losses) gains

 

We recorded foreign exchange losses of $106,000 for the three months ended March 31, 2017, as a net result of U.S. Dollar denominated bank accounts, accounts receivable, and accounts payable reflected on the books of Oxford Immunotec Limited, which has a functional currency of the U.K. Pound Sterling. For the three months ended March 31, 2016, we recorded foreign exchange gains of $363,000. We are exposed to foreign exchange rate risk because we currently operate in three major regions of the world: the United States, Europe and ROW, and Asia, and our revenue is denominated in multiple currencies. Approximately 63% of our sales for the three months ended March 31, 2017 were in the United States, which are denominated in U.S. Dollars. Sales in China are also denominated in U.S. Dollars. Sales in Europe are denominated primarily in the U.K. Pound Sterling and the Euro. As we grow Europe and ROW sales outside the U.K. and the Euro Zone, we may be subject to risk from additional currencies. Sales in Japan are denominated in Yen.

 

Our expenses are generally denominated in the currencies in which our operations are located, which are primarily in the United States, the United Kingdom, Japan, Europe and China.

 

As we continue to grow our business outside the United States, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. To date, we have not entered into any foreign currency hedging contracts, although we may do so in the future.

 

Other expense

 

Other expense was $140,000 for the three months ended March 31, 2017, compared to expense of $166,000 for the three months ended March 31, 2016.

 

Liquidity and capital resources

 

Sources of funds

 

Since our inception, we have incurred significant net losses and negative cash flows from operations. For the three months ended March 31, 2017, we had a net loss of $8.1 million and used $14.6 million of cash for operating activities. As of March 31, 2017, we had an accumulated deficit of $176.7 million. We incurred a net loss of $7.0 million and used $14.0 million of cash for operating activities for the three months ended March 31, 2016.

 

As of March 31, 2017, we had cash and cash equivalents of $43.1 million.

 

As noted above, on October 4, 2016, we entered into a credit agreement with MidCap Financial Funding. The credit agreement consists of a 60 month, $30.0 million term loan and a $10.0 million revolving line of credit, both of which mature on September 30, 2021. The availability of funds under the revolving line of credit is based upon the Company’s eligible accounts receivable and eligible inventory. In accordance with the terms of the revolving line of credit, the Company is required to maintain a minimum drawn balance of no less than 30% of availability. Based on certain conditions, both the term loan and revolving line of credit may be increased by an additional $10.0 million for a total of $60.0 million. The Company has not yet borrowed under the revolving line of credit.

 

 

Summary of cash flows

 

The following table summarizes our cash and cash equivalents, accounts receivable and cash flows for the periods indicated:

 

		As of and for the three months ended March 31,
(in thousands)		2017				2016
Cash and cash equivalents, excluding restricted cash		$	43,133			$	68,731
Accounts receivable, net			16,906				8,427
Net cash used in operating activities		$	(14,638	)		$	(13,982	)
Net cash used in investing activities			(1,301	)			(731	)
Net cash used in financing activities			(148	)			(8	)
Effect of exchange rate changes on cash and cash equivalents			110				(263	)
Net decrease in cash and cash equivalents, excluding restricted cash		$	(15,977	)		$	(14,984	)

 

Cash flows for the three months ended March 31, 2017 and 2016

 

Operating activities

 

Net cash used in operating activities was $14.6 million during the three months ended March 31, 2017, which included a net loss of $8.1 million, non-cash expenses of $121,000, and cash used for changes in operating assets and liabilities of $6.7 million. The non-cash items included share-based compensation expense of $1.3 million, depreciation and amortization of intangible assets expense of $1.0 million, and accretion and amortization of loan fees of $149,000, largely offset by a decrease in the fair value of contingent purchase price consideration of $2.4 million. The cash used for changes in operating assets and liabilities included an increase in accounts receivable of $3.6 million, an increase in prepaid expenses and other assets of $1.4 million, a decrease in accounts payable and accrued liabilities of $908,000, and an increase in inventory, net of $806,000. The increase in accounts receivable, net reflects growing sales and timing of customer payments. The increase in prepaid expenses and other assets reflects the timing of certain payments. The decrease in accounts payable and accrued liabilities was largely due to payments in the first three months of 2017 for royalties on intellectual property and bonuses that were accrued for at December 31, 2016, as well as the timing of payments. Inventory, net increased due to timing.

 

Net cash used in operating activities was $14.0 million during the three months ended March 31, 2016, which included a net loss of $7.0 million, non-cash items of $1.7 million, and cash used for changes in operating assets and liabilities of $8.7 million. The non-cash items consisted of share-based compensation expense of $1.1 million, depreciation and amortization expense of $581,000, and a $55,000 expense on the change in fair value of contingent purchase price consideration. The cash used for changes in operating assets and liabilities included a decrease in accounts payable and accrued liabilities of $4.4 million, a decrease in deferred income of $1.5 million, an increase in inventory of $1.5 million, and an increase in accounts receivable, net of $1.5 million, partially offset by a decrease in prepaid expenses and other assets of $128,000. The decrease in accounts payable and accrued liabilities was largely due to payments in the first three months of 2016 for royalties on intellectual property and bonuses that were accrued for at December 31, 2015, as well as the timing of payments. The decrease in deferred income related to a change in the process used to determine pricing for certain sales to customers in Japan that has resulted in those sales being recorded upon shipment. Inventory increased due to timing and accounts receivable, net increased as a reflection of growing sales. The decrease in prepaid expenses and other assets reflects the timing of certain payments.

 

Investing activities

 

Net cash used in investing activities was $1.3 million during the three months ended March 31, 2017 and consisted of purchases of property and equipment.

 

Net cash used in investing activities was $731,000 during the three months ended March 31, 2016.

 

 

Financing activities

 

Net cash used in financing activities was $148,000 during the three months ended March 31, 2017.

 

Net cash used in financing activities was $8,000 during the three months ended March 31, 2016. 

 

Contractual obligations

 

In May 2017, we entered into a lease amendment for our location in Norwood, Massachusetts to extend the term of the lease through March 31, 2023. In accordance with the lease amendment, we will move to a larger space in an adjacent building in Norwood containing about 39,000 square feet of rentable space. The base rent for the new space over the lease term will range from an initial low of $73,000 per month to a high of $83,000 per month. We will have two options to extend the lease term, each for a five-year period. During the transition, we will also be responsible for the lease payments on the existing space.

 

Employees

 

As of March 31, 2017, we had 431 employees. None of our employees is represented by a labor union. However, we have one employee in Belgium covered under a collective bargaining agreement. We have not experienced any work stoppages and we believe our employee relations are good.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The Company’s exposure to market risk from interest rate fluctuations, capital market fluctuations, and foreign currency exchange rate fluctuations has not materially changed from its exposure as of December 31, 2016, as described in Item 7A of our 2016 Form 10-K.

 

Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control Over Financial Reporting

 

There have been no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On August 10, 2015, Oxford Immunotec Limited, a wholly-owned subsidiary of Oxford Immunotec Global PLC, filed suit in the United States District Court for the District of Massachusetts against Qiagen N.V., Qiagen Inc., Quest Diagnostics LLC, and Laboratory Corporation of America Holdings alleging claims of patent infringement and seeking monetary and injunctive relief. The complaint alleges that the defendants’ manufacture, sale and/or use of the QuantiFERON-TB Gold test infringes patents owned by Oxford Immunotec Limited. The defendants timely responded to the complaint in early October 2015 and challenged the validity of the patents upon which the complaint is based. The defendants argued that our patents are invalid under U.S. law because they claim naturally occurring products or processes. The defendant’s motion to dismiss the complaint was denied on September 30, 2016. The defendants have answered the complaint, denying all allegations. The case is scheduled for trial in January 2018. We can provide no assurances as to the likely outcome of the litigation.

 

Item 1A. Risk Factors

 

There have been no material changes in the risk factors described in “Item 1A. Risk Factors” of the Company’s 2016 Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this Quarterly Report, which Exhibit Index is incorporated herein by this reference.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		OXFORD IMMUNOTEC GLOBAL PLC
Date: May 2, 2017	/s/	Peter Wrighton-Smith, Ph.D.
		Peter Wrighton-Smith, Ph.D.
		Chief Executive Officer and Director
		(Principal Executive Officer)
Date: May 2, 2017	/s/	Richard M. Altieri
		Richard M. Altieri
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

 

EXHIBIT INDEX

Exhibit No.			Description
	3.1		Articles of Association of the Registrant (Filed as Exhibit 3.1 to our Current Report on Form 8-K on June 18, 2014 and incorporated herein by reference.)
	31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	101		The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed consolidated balance sheets at March 31, 2017 and December 31, 2016; (ii) Condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016; (iii) Condensed consolidated statements of comprehensive loss for the three months ended March 31, 2017 and 2016; (iv) Condensed consolidated statements of cash flows for the three months ended March 31, 2017 and 2016; and (v) Notes to unaudited condensed consolidated financial statements

 

 

 

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